As of 1 January 2025, employers can face criminal charges for intentionally underpaying wages or entitlements. The new wage theft laws are part of the Closing Loopholes legislative changes, and include a significant amendment to the Fair Work Act 2009 (Cth) (FWA). This momentous shift follows the lodging of the Voluntary Small Business Wage Compliance Code Declaration 2024 (the Code) on December 16, 2024, with the Federal Register of Legislation, which paved the way for the implementation of the new wage theft criminal offence. These changes are part of broader reform initiatives aimed at addressing and closing gaps in wage compliance.
Under the changes, the intentional underpayment of wages or entitlements is now a criminal offence. This includes instances where employers pay less than the minimum entitlements stipulated under the FWA such as wages, superannuation, and other mandated benefits, as well as deliberately failing to make these payments by the agreed due date.
Penalties for wage underpayment offences vary between businesses and individuals. For businesses found guilty of this offence, the penalty will be the greater of three times the underpayment amount or $7.825 million, however if the underpayment amount cannot be determined, the business may face a fine of up to $7.825 million.
For individuals, penalties could include imprisonment for up to 10 years. Additionally, if the underpayment amount is determined, the penalty will be the greater of three times the underpayment amount or $1.565 million. If the underpayment amount cannot be determined, a fine of $1.565 million will apply.
There is however an exception to the rule. The underpayment of employees' wages and benefits may not be considered a criminal offence if the court determines that the employer did not intentionally underpay their employees and that the underpayment was the result of an honest mistake.
The Code was developed as a guide to help small businesses prevent the occurrence of wage theft offences. The Code will also be used by the Fair Work Ombudsman to assess whether an employer has intentionally underpaid their employees. However, as the Code does not provide a specific checklist of rules and procedures, the assessment will consider the business as a whole, and taking into account the specific circumstances of the case, to determine whether the Code has been adhered to.
The Fair Work Ombudsman has outlined the following considerations that will be taken into account when assessing an employer's compliance with the Code:
- Taken reasonable steps to work out correct pay rates and entitlements.
- Made reasonable effort to stay up to date with changes to their obligations, including in workplace laws.
- Checked and relied on employee information the employer reasonably believed was accurate in relation to paying wages.
- Sought information or advice from a reliable source about paying employee entitlements correctly.
- Provided information when seeking information or advice that the employer reasonably believed was accurate.
- Taken steps to fix the underpayment.
- Cooperating with any inquiry or investigation that we may conduct about the underpayment.
- Other factors that might be relevant, such as what led to the underpayment or how the employer became aware of the underpayment.
As an employer it is crucial to prioritise key compliance areas that will help safeguard against unintended breaches and align with evolving wage theft regulations. We suggest that employers consider the following to protect their business against risk:
- Review payroll systems to ensure accuracy and automation where possible to help reduce human errors.
- Check employment classifications to ensure employees are correctly classified under the appropriate modern award. We are happy to assist with any queries and to help businesses ensure overtime and penalty rates are being paid as necessary.
- Train payroll employees regularly to ensure they keep up to date with changes and subscribe to periodic resources such as Fair Work Australia newsletters.
- Conduct regular payroll audits to ensure compliance and address any discrepancies immediately.
The introduction of criminal penalties for intentional wage underpayment represents a significant shift in workplace law. Pointon Partners has extensive experience in assisting business compliance and if you have any queries or require assistance please contact Michael Bishop or Amelita Hensman of our Employment Law Team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
